Opinion · Court of Appeals for the Second Circuit
COMMISSIONER OF INTERNAL REVENUE v. Adda, Inc.
Comm’r OF INTERNAL REVENUE v. Adda, Inc., 171 F.2d 367 (2d Cir. 1949)
- Type
- Opinion
- Court
- Court of Appeals for the Second Circuit
- Jurisdiction
- Federal
- Date
- 1949-01-14
- Topic
- general
FRANK, Circuit Judge. The Commissioner contends that the vendor was personally liable for the real estate taxes before Adda, Inc., the taxpayer, acquired title, and that therefore the taxpayer was not liable for such taxes, and could not properly deduct them, although it paid them. We cannot agree. We need not here consider whether, in the light of Village of Massapequa Park v. Massapequa Park Villa Sites, 278 N.Y. 28, 15 N.E.2d 177, a resident is ever personally liable for New York City real estate taxes. 1 For assuming, arguendo, that, in the appropriate circumstances, he is, we think that no such personal liability comes into existence until the tax is “due and payable.” See Matter of Appell, 199 App.Div. 580, 192 N.Y.S. 136, affirmed 234 N.Y. 600, 138 N.E. 462.
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COMMISSIONER OF INTERNAL REVENUE v. ADDA, INC.,171 F.2d 367(2nd Cir. 1948)
COMMISSIONER OF INTERNAL REVENUE v. ADDA, Inc.
No. 35, Docket 20919.
United States Court of Appeals, Second Circuit.
December 6, 1948.
As Amended on Denial of Rehearing January 14, 1949.
Decision affirmed.
The taxpayer, Adda, Inc., on August 5, 1940, purchased and took title to real estate situated in New York City. Before that date, the City's assessment-roll forPage 368taxes on that property, for the fiscal year July 1, 1940 to June 30, 1941, had been completed and delivered for collection. The vendor, then a resident of New York City and of the same borough in which the property was situated, correctly appeared on that assessment-roll as the then owner.
Section 172 of the Charter of the New York City provides that taxes on real estate for each fiscal year shall be "due and payable" in two equal instalments, the first of which shall be "due and payable" on October 1 in such fiscal year, and the second on April 1 of such year; it also provides that such taxes shall "become liens on the real estate * * * on the respective dates when they become due and payable, and not earlier, and shall remain such liens until paid."
The taxpayer paid these instalments of real estate taxes on October 1, 1940 and April 1, 1941, respectively. It kept its books and made its federal income tax returns on an accrual basis. As appears from the opinion of the Tax Court,9 T.C. 199, the question before that court was whether, pursuant to 26 U.S.C.A. § 23(c)(1), the taxpayer, in computing its net operating loss for the taxable period ended June 30, 1941, correctly deducted those payments as "taxes paid or accrued within the taxable year". From the Tax Court's decision in favor of the taxpayer the Commissioner appeals.
Benjamin Mahler, of New York City, for respondent.
Before SWAN, CHASE and FRANK, Circuit Judges.
We need not here consider whether, in the light of Village of Massapequa Park v. Massapequa Park Villa Sites,278 N.Y. 28,15 N.E.2d 177, a resident is ever personally liable for New York City real estate taxes.1For assuming, arguendo, that, in the appropriate circumstances, he is, we think that no such personal liability comes into existence until the tax is "due and payable." See Matter of Appell,199 App. Div. 580, 192 N.Y.S. 136, affirmed234 N.Y. 600, 138 N.E. 462. There the court held the personal representative not liable for real estate taxes not "due and payable" during the decedent's life; the rationale of that decision leads to the conclusion that a vendor of real estate is not personally liable for a tax thereon which is not "due and payable" at the time when title passed to the vendee.
The tax involved in Matter of Appell,199 App. Div. 580, 192 N YS. 136 (affirmed234 N.Y. 600, 138 N.E. 462), was levied in 1915 before the effective date of L. 1916, c. 323, § 43, effective April 26, 1916, which amended § 71 of the New York Tax Law to read, in part: "If the owner of a parcel or portion of real property is a resident of the tax district in which such parcel or portion of real property is assessed, and his name is correctly entered on the assessment-roll, he shall be personally liable for the tax assessed against such parcel or portion of real property." The Commissioner asserts that this section imposes personal liability on the vendor even though the tax is not "due and payable" until after the sale. However, the Appell case has been followed since the enactment of the statute in Matter of Eckenroth's Estate,167 Misc. 632,4 N.Y.S.2d 582, and Matter of Pinkney's Estate,170 Misc. 645,12 N.Y.S.2d 69. Magruder v. Supplee,316 U.S. 394, 62 S.Ct. 1162, 86 L.Ed. 1555, is distinguishable because there the taxes were due and payable, there was a lien on the property, and the vendor was personally liable for the taxes before the sale.Page 369
We regard as inapposite Helvering v. S.E. M.E. Bernheimer Co., 41 B.T.A. 249, affirmed, 2 Cir., 121 F.2d 454. That case held merely that if a taxpayer who made his return of federal income tax on an accrual basis elected to pay in full the New York real estate tax when only the first instalment of that tax was due and payable, he could properly deduct that entire payment as if the total liability had accrued at the time of such payment. See Commissioner of Internal Revenue v. Le Roy, 2 Cir.,152 F.2d 936, 937. We agree with the following statement of the Tax Court: "A privilege accorded the taxpayer to accrue taxes before they are due, when his books are kept and returns are made on the accrual basis, does not thereby impose a liability to pay taxes before they become due."
Affirmed.
- In Commissioner of Internal Revenue v. Le Roy, 2 Cir.,152 F.2d 936, 937, where the vendor was a non-resident, we left open the question whether the rule would be different if the vendor was a resident. ↩